U.S. says taxes played role in Shell Alaska rig grounding

4/4/2014

U.S. says taxes played role in Shell Alaska rig grounding

JIM SNYDER

THE HAGUE, Netherlands (Bloomberg) -- Shell's belief that a drilling rig would face million of dollars in Alaska taxes influenced its 2012 decision to move the vessel, which broke free while being towed in stormy seas and ran aground on an uninhabited island, the United States Coast Guard said in a report.

Shell decided to move the Kulluk drill rig in late December from Alaska to Seattle for repairs. The rig might have been subject to a state property tax had it remained in Alaska waters beyond Jan. 1, 2013, according to the report that offered eight recommendations to improve safety.

“A complex series of events contributed to the error chain that resulted in the grounding,” the report states. “The most significant factor was the decision to attempt the voyage during the winter in the unique and challenging operating environment of Alaska.”

Shell has spent billions of dollars in its effort to drill for oil Alaska’s Beaufort and Chukchi seas, which are part of the Arctic Ocean. Shell hasn’t resumed work in Alaska waters, and said in January that it didn’t plan to return to the Arctic this year.

“We appreciate the United States Coast Guard’s thorough investigation into the Kulluk towing incident and will take the findings seriously,” Shell said in a statement.

A series of mishaps, including damage during testing to a containment dome that would be used to cap a spill, prompted the U.S. Interior Department to examine Shell’s Arctic operations in January 2013. The review criticized Shell’s oversight of contractors that were part of its Arctic drilling operations.

Senator Lisa Murkowski, an Alaska Republican, praised the Coast Guard for the report and said energy resources in the Arctic can be developed, “but it requires that we adhere to world-class safety standards.”

Senator Edward Markey, a Massachusetts Democrat, said in a statement that the report raises “major red flags for any future Arctic drilling plans.”